1. A company has developed a new 3D television with outstanding displays. The company has a patent on a new technology that doesn’t require glasses to see the 3D effect and has a display far better than those of any competitor’s 3D televisions. The company still has to compete with other television manufacturers, but because of the patent and superior technology it is likely to have a large advantage in the 3D television market for at least a year or two.
2. A brand new company has developed a new dishwater detergent which is comparable to other major brands in quality, but the company has developed a new manufacturing technology that over a period of time should be able to produce detergent at a cheaper cost than any competitor. The cost of the new manufacturing equipment was high, but once the equipment is paid off it should be very cheap to produce each bottle of detergent.
3. You have just opened up a new electronics shop and Apple will be releasing their latest iPhone in a few days. You are confident that once customers come into your shop they will be impressed with your large selection and knowledgeable and friendly sales staff and will become loyal customers. However, given the nearby location of Best Buy and other popular electronics shops it will be a challenge to get customers into your shop. So the first big pricing decision you have to make is what to charge for iPhones.
4. You have started a new fashion company, and your partner in this business is one of the top designers in Italy. You and your business partner’s plan is to become known as one of the premier manufacturers and designers of blue jeans in the world, and hope to have a very high end brand well known among the wealthy and fashion conscience.
Marketing strategy is usually associated with four main key elements which are people (consumers), price, promotion, and place. Pricing is an important marketing mix mainly because the type of pricing that a business chooses to use can affect the distribution of the goods and the efforts put in promoting the product to the consumer and even the potential customers. In the case of a new company or perhaps a company has been in the market for years it becomes a challenge to put the product’s price that is favorable to the manufacturer and will cater every unit of production the raw materials underwent before it was refined to the very product and also to the consumers in such a way that it won’t be so sky rocket high for them to be able to buy the commodity. The challenge comes in that if the company decides to set the price of the product so high they will risk losing their customer and most probably have a zero chance of attracting new potential customers. However if the company sets the price too low the company will have a very low profits margin in some extremely low prices the company will experience a loss as the production cost will be much higher than the income generated from the sale of their end product (Carmin & Norkus, 1990)
In the pricing setting process, the company’s main point of interest if finding the right price whereby the company will maximize sales as the commodity will be consumer pocket friendly and at the same time the company realizing a favorable profit margin. There are eleven types of pricing namely: premium pricing, penetration pricing, and economy pricing, skimming pricing, psychological pricing, neutral pricing strategy, captive product pricing, optional product pricing, bundling pricing, promotional pricing strategy and geographical pricing Mochtar & Arditi, 2001).
1. In the case of the first scenario where a company has come up with a new 3D television with unique display properties, I would choose skimming pricing strategy. In the description, skimming pricing strategy is a strategy of setting the price of the product higher than the normal price and as the first customer demands gets satisfied, the company then lowers their prices for the same commodity to attract other consumers who want the same commodity but are more price sensitive (Besanko &Winston, 1990). Skimming pricing strategy is mainly used when there is a large number of prospective consumers willing to buy the product at the higher price. Because of the unique properties that the product has and no other competitive firm offers has the know how to make an almost similar product with exact properties as to what the company is making. The second scenario is when the competitors are discouraged by the high prices and not even one is willing to indulge in the production of a competitive product and the third is when the high prices are seen as a mark of quality. Because the company has a patent on the new technology that doesn’t need glasses to see the 3D effect and with and advantage of a far much better display than those of competitors’ 3D televisions it will have a competitive advantage which will certainly gain maximum revenue profits before other competitive firms learn of the technology used I creating the product and redesign and start offering a similar product or substitute product. In this situation, the company will introduce the new technology to the market at a high price because the new technology has a very competitive display advantage over the normal 3D display television and that they are the only manufacturer of the product. Customers will buy the product at the high price because there is no substitute product and when the technology is copied by the close competitors like the Chinese manufacturers then the product will lose its premium value and hence the company will drop the prices of the product to avoid being through out of the market as a result of competition (Liu, 2010).
2. For the second question where a company has developed a washing detergent which has similar properties to competitive brands but the company has a technology where it produces the commodity at a much cheaper price the company should indulge in bundle pricing strategy. Bundle pricing strategy is whereby a company joins products together with an aim of selling them as a single unit. It is mainly used to conveniently allow the purchase of several related products from one company (Wu, Hitt, Chen & Anandalingam, 2008). Since the company has found a better way of incorporating the new technology to produce competitive detergent at a cheaper price it should incorporate bundle pricing scheme as customers will be more likely to purchase the bundled product from the company as opposed to the competitive companies which simply offer a single commodity at a similar price range. The company should incorporate a variety of detergent it is involved in their production. Such that in a single bundle there can be both a soap less and soppy detergent or a lotion and solid detergent in a way such that they will increase the preference base of different consumers. An increase in consumer preference will most likely make them buy more of the bundle products from the company as opposed to competitive firms which mainly deals with the sale of only a single unit of product. Despite the cost of the new manufacturing equipment being high, but incorporating bundle pricing is going to attract so many customers that they will buy the products in large numbers raising the profits margin of the company and the company will be able to pay for the product (Hanson & Martin, 1990).
3. Given the situation that I have just opened a new shop and am confident that customers will definitely be impressed by my electronic collection once they see it. However, this won’t happen because am facing stiff competition from other shop offering similar electronic commodities. And apple is releasing their latest iPhone brand I will choose psychological pricing strategy to attract customers to my shop. Psychological pricing technique is mainly used to show that prices of commodities are cheaper than how they are really meant to be but in reality, they are almost similar (Alpert, 1970). This technique relies heavily on the psychological response to prefer buying the commodity shops where they are “cheaper” than what they are supposed to really cost. Customers are willing to buy a commodity at $9.99 other than $10. The difference in price is almost irrelevant but can make a great difference in consumers’ mind. Hence I would use this psychological approach on the cost of an iPhone. Make the information known all over my geographical location to create awareness the presence of my electronic shop. I would do this by printing banners and posters and then distribute them in my geographical locality. Once I create awareness of the “low” price of the iPhone in my shop many potential customers will come to buy (Fengler & Winter, 2001).
As they come to buy the iPhone I will display my electronic commodities to which will surely attract their attention. I will benefit from them making, even more, purchases of the commodities I had not advertised. This is because they will see and since their mentality is set that I offer the very same products as the competitive shops but at a cheaper price they will be more willing to buy from me other than them. Hence this will increase my sales as I wanted (Friberg & Mathä, 2004).
4. In this scenario where I together with a top Italy designer have started a fashion company, I will use premium pricing. Premium pricing strategy mainly focuses on setting the price of a commodity higher that those produced by the competitive firm (Allsopp, 2005).This strategy skims the top cream consumers off the market. It is mainly used to increase the profits margins in areas where the consumers are willing to pay more. Since it is a fashion business the fashion industry is composed of the noble consumers in the market. And since the partner is one of the top designers in one of the leading fashion design countries in the world Italy, he or she must be pretty famous for his design work. Hence incorporating premium pricing technique will greatly and positively impact the business as they will pay for the services offered to them by a top designer as well as maintain their fashion standards to the top by paying more (Venkatesh & Mahajan, 1997).
References
Allsopp, J. (2005). Additional practice papers: Premium pricing: Understanding the value of premium. Journal of Revenue and Pricing Management, 4(2), 185-194.
Alpert, M. I. (1970). Demand Curve Estimation and Psychological Pricing. Managerial Analysis in Marketing, Glenview, IL: Scott Foresman.
Besanko, D., & Winston, W. L. (1990). Optimal price skimming by a monopolist facing rational consumers. Management Science, 36(5), 555-567.
Carmin, J., & Norkus, G. X. (1990). Pricing strategies for menus: magic or myth?. The Cornell Hotel and Restaurant Administration Quarterly, 31(3), 44-50.
Fengler, M., & Winter, J. (2001). Psychological pricing points and price adjustment in German retail markets. Manuscript, University of Mannheim, Mannheim, Germany.
Friberg, R., & Mathä, T. Y. (2004). Does a common currency lead to (more) price equalization? The role of psychological pricing points. Economics Letters, 84(2), 281-287.
Liu, H. (2010). Dynamics of pricing in the video game console market: skimming or penetration?. Journal of Marketing Research, 47(3), 428-443.
Mochtar, K., & Arditi, D. (2001). Pricing strategy in the US construction industry. Construction Management & Economics, 19(4), 405-415.
Venkatesh, R., & Mahajan, V. (1997). Products with branded components: An approach for premium pricing and partner selection. Marketing Science, 16(2), 146-165.
Wu, S. Y., Hitt, L. M., Chen, P. Y., & Anandalingam, G. (2008). Customized bundle pricing for information goods: A nonlinear mixed-integer programming approach. Management Science, 54(3), 608-622.
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